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Physical approach to price momentum and its application to momentum strategy

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  • Jaehyung Choi

Abstract

We introduce various quantitative and mathematical definitions for price momentum of financial instruments. The price momentum is quantified with velocity and mass concepts originated from the momentum in physics. By using the physical momentum of price as a selection criterion, the weekly contrarian strategies are implemented in South Korea KOSPI 200 and US S&P 500 universes. The alternative strategies constructed by the physical momentum achieve the better expected returns and reward-risk measures than those of the traditional contrarian strategy in weekly scale. The portfolio performance is not understood by the Fama-French three-factor model.

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  • Jaehyung Choi, 2012. "Physical approach to price momentum and its application to momentum strategy," Papers 1208.2775, arXiv.org, revised Aug 2014.
    • Handle: RePEc:arx:papers:1208.2775
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    Cited by:

    1. Liu, Haijun & Wang, Longfei, 2018. "The price momentum of stock in distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 492(C), pages 2336-2344.
    2. Choi, Jaehyung & Kim, Young Shin & Mitov, Ivan, 2015. "Reward-risk momentum strategies using classical tempered stable distribution," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 194-213.
    3. Sun, Bowen & Li, Huajiao & An, Pengli & Wang, Ze, 2020. "Dynamic energy stock selection based on shareholders’ coholding network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 542(C).
    4. Jaehyung Choi, 2021. "Maximum Drawdown, Recovery, and Momentum," JRFM, MDPI, vol. 14(11), pages 1-25, November.
    5. Naresh Kumar Devulapally & Tulasi Narendra Das Tripurana, 2023. "Physical Momentum in the Indian Stock Market," Papers 2302.13245, arXiv.org.
    6. Zainudin, Ahmad Danial & Mohamad, Azhar, 2021. "Financial contagion in the futures markets amidst global geo-economic events," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 288-308.

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